Understanding the true causes of viral marketing

Modern growth is driven by more than just communication — it’s galvanised by clever marketing features that are baked into the product itself. Marketers talk about their great campaigns for growth all the time, but too rarely do these campaigns drive the types of rapid growth that we see in apps — and here’s why.

It might be a long time ago, but do you remember the first web-based app that went viral? No, it wasn’t Facebook. It wasn’t even Myspace or Bebo. It was Hotmail.

Most people remember Hotmail as a slightly clunky, but fairly useful, browser-based email platform that started in the late 90s and really took off in the early noughties. For many of us, it was our first serious email account. For many 90s kids and millennials, it was their first — and last — foray into the world of electronic communication before the imperial era of the Facebook and Google juggernauts took hold.

Hotmail heralded a new wave of email: one which didn’t require you to install any new programs on your computer in order to get started.

Cool, right?

Except here’s the funny thing: Hotmail failed to gain any significant traction upon its launch. It took Tim Draper, one of their investors, to realise that they needed a better customer acquisition strategy than messages on billboards.

That’s when a genius tagline was born: “P.S. I love you. Get your free email at HoTMail”. It was a simple mechanic to ensure that every customer was, in some way, letting their friends know that a) “I enjoy this service” and b) “You could be using the same service for free”.

User growth exploded overnight. Competitors couldn’t work out why their growth was so high with such little marketing. And the more the competition spent trying to match that user growth, the more money they took away from developing a superior product. Suddenly, Hotmail had put its competition on the back foot.

It gave us an interesting insight into product marketing.

This strategy — a simple mechanic and referral mechanism — is called a viral loop.

Here’s the thing about scaling products: to scale them effectively, ahead of your competition, you’ve also got to scale marketing efforts. Acquiring 10,000 people should take a higher per user cost than acquiring 100,000 users.

Most people focus on scaling their customer costs and forget to scale the marketing costs, leading to slow user growth, and less-than-desirable marketing burn rates.

Take, as a hypothetical, Accounting Software Company A (ASCA). ASCA can likely service 10,000 customers for $1,000 in server costs and 100,000 customers for $2,000 in server costs.

That gives them a scalable production cost — one that most traditional service businesses (e.g actual accountants) would struggle to match. They have a strong economy of scale on the production side, mostly because they’re costs don’t significantly increase between users.

But if ACSA acquires the first 10,000 customers for $2, and then the next 100,000 at $2, they lack an economy of scale around their marketing. That means for Xero to both succeed and have a defensible position they need to raise a lot of money early to own the market.

If their marketing was scalable, then it would be easier as time went on to acquire users. They’d have to raise less money. And if they got a nose in front of their competitors, their market position would become entrenched. This would represent a far more attractive proposition for investors.

Enter the viral loop.

Marketers talk about the viral loop in a number of different ways: the Net Promoter Score; word of mouth; even numbers like brand preference paint a useful picture.

The challenge is that these metrics are represent largely hypothetical numbers. In a digital world, with proper attribution (yes, it is possible if you simplify your data a little) and proper conversion tags, you can actually start to track this at a user level. Rather than focusing on the likelihood of someone recommending you, as most research firms will try to measure, why not just measure the actual number of times that they recommend you?

That number and measurement is called the viral coefficient. For product marketing managers and CMOs, it should be the gold standard in understanding your product marketing.

So if viral loops are the strategy, and viral coefficient is the measurement, what can you do to drive the loop? Well, most successful tech companies already have ways of artificially creating them.

Yahoo!, Facebook and Twitter all put you in a position to invite or add your friends at the start of your journey. The small skip button was a slight shift that made it feel as though these referrals were mandatory to access the service. And because these brands had built a lot of PR hype, users felt that this was a fair enough trade-off to get in.

The result was that most incoming users would, in turn, market to more users to communicate that they’d joined the service. As the process caught on, such a communication began to feel less like an annoying imposition, à la ceaseless Farmville invitations, and more like a low-key way of keeping your network in the loop of the conversations they should be having; the networks which they should be participating in.

AirBnb’s viral loop was far cleverer — and hackier. They built an API to interact with Craigslist, which was the dominant supplier at the time. Every time a host listed on AirBnb, they were told to also place an ad linking back to AirBnb on Craigslist. All they had to do was tick the box, and it would be done via automation.

On the flipside, every time someone listed a property on Craigslist that wasn’t on AirBnb, AirBnb would send an automated email to the owner recommending they list their property on AirBnb for increased earnings.

AirBnb completely scaled their marketing — and they did it not through communications, but by design. They created a product feature inherently designed to power the viral loop.

Traditional marketers aren’t good at thinking like this, mostly because this isn’t just a communications layer. It’s built into the product itself.

Here are some other examples of a viral loop at work:

- Messaging hacks: Australian startup Bombd made users text their friends that they were now using Bombd, and they should too.

- Referral programs and competitions: Examples include Uber’s $10 incentive to get you to onboard another user and get them to take a paying ride, or Hungry Jack’s ‘shake and win’ app, that required users to make a post on Facebook in order to get a burger.

For all marketers, the viral co-efficient should become a key metric in your arsenal. If you’re looking to not just drive your marketing budget, but scale it, then now’s the time to think a little differently.

Start focusing on the viral loop, and I’m sure you’ll start dramatically changing your CPA figures as well.

Now, I know what you’re thinking. If you’re in the insurance market, or the car industry, or any number of other high friction industries, how does this apply? After all, it’s a bit different creating virality in FMCG or apps against a far more serious purchase like a car.

Well, the answer lies in the product — or, more precisely, in its creation. Focus on creating a product that’s low friction, and drives sales longer term.

You might think that brands can’t really do this, but the reality is that many of them already are. Products aren’t necessarily tangible things you have to buy. They can also be media products — or owned-content marketing products. And when you already have a captive audience, you’ve got opportunities to build viral loops to bring more people into your product’s ecosystem.

Medibank’s be. magazine is a great example of a brand in a typically low-interest category building a media product instead. And they use that low friction product to drive referrals, and scale their marketing efforts. The result? An engaged audience which shares content naturally and works to drive brand awareness, and ultimately, membership prospects.

We’ve now got hundreds of opportunities not just to communicate, but to drive user behaviours.

Thinking a little more strategically about driving user behaviour might just be the key to scaling your own marketing efforts.

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